Do I Still Pay US Taxes If I Move Abroad? What Every American Expat Needs to Know

Last updated: March 2026

Yes, you still have to pay US taxes if you move abroad. The United States is one of only two countries in the world (the other is Eritrea) that taxes its citizens on worldwide income, regardless of where they live or earn that income.

But before you panic: most American expats end up owing little or nothing to the IRS thanks to several powerful exclusions and credits. Here's exactly how it works.

The Foreign Earned Income Exclusion (FEIE)

Quick answer: The FEIE lets you exclude up to $130,000 of foreign earned income from US taxes in 2026 — effectively making most expat salaries tax-free at the federal level.

The Foreign Earned Income Exclusion (Form 2555) is the most important tax tool for American expats. For the 2026 tax year, you can exclude up to approximately $130,000 of foreign earned income from your US tax return.

To qualify, you must meet ONE of these tests:

1. Bona Fide Residence Test: You've been a bona fide resident of a foreign country for an entire tax year (January 1 - December 31)
2. Physical Presence Test: You've been physically present in a foreign country for at least 330 full days during any 12-month period

The Physical Presence Test is simpler and doesn't require permanent residency abroad. But "330 days" means you can only spend about 35 days in the US per year — plan your visits carefully.

The Foreign Housing Exclusion

Quick answer: On top of the FEIE, you can exclude qualified housing expenses above a base amount — typically adding $15,000-30,000 in additional exclusions depending on your city.

If your housing costs in a high-cost city like London, Tokyo, or Zurich exceed the base housing amount (roughly $18,000/year), you can exclude the excess up to location-specific limits. In expensive cities, this can add $20,000-30,000+ to your total exclusion.

Combined with the FEIE, an American expat earning $160,000 in a high-cost city could potentially exclude their entire income.

Foreign Tax Credit (FTC)

Quick answer: If you pay income tax to your host country, you can credit that amount dollar-for-dollar against your US tax bill — preventing true double taxation.

The Foreign Tax Credit (Form 1116) is the alternative to the FEIE, and sometimes it's the better choice. If you're paying income tax in a high-tax country like Germany (top rate ~45%), France (top rate ~45%), or the UK (top rate 45%), the FTC can be more beneficial than the FEIE.

Key difference:

• FEIE: Excludes income from your return entirely (but you can't use unused exclusion later)
• FTC: Reduces your tax dollar-for-dollar (and unused credits carry forward/backward)

For expats in low-tax or zero-tax countries (Dubai, Thailand under 183 days, Georgia), the FEIE is usually better. For those in high-tax European countries, the FTC often wins.

FBAR and FATCA: The Reporting Requirements That Trip People Up

Quick answer: You must report foreign bank accounts exceeding $10,000 total via FBAR and foreign financial assets exceeding $50,000 via FATCA — penalties for non-compliance are severe.

FBAR (FinCEN 114)

If the combined balance of ALL your foreign financial accounts exceeds $10,000 at any point during the year, you must file an FBAR. This includes:

• Bank accounts
• Investment accounts
• Pension accounts
• Even accounts where you have signature authority

Penalty for willful non-filing: Up to $100,000 or 50% of account balance per violation. This is not a theoretical risk — the IRS actively pursues FBAR violations.

FATCA (Form 8938)

If your foreign financial assets exceed $50,000 on the last day of the tax year (or $75,000 at any point), you must file Form 8938. Thresholds are higher for married couples filing jointly.

The 5 Most Common Mistakes American Expats Make

Quick answer: Not filing at all is the biggest mistake — even if you owe $0, failure to file can result in penalties and loss of FEIE eligibility.

1. Not filing at all: Even if you owe nothing, you MUST file to claim the FEIE. Miss 3 consecutive years and you lose FEIE eligibility temporarily.

2. Forgetting state taxes: Some states (California, Virginia, New Mexico) continue to tax you even after you move abroad unless you formally establish residency elsewhere. Moving overseas does NOT automatically sever state tax residency.

3. Missing FBAR deadlines: FBAR is due April 15 with automatic extension to October 15. But many expats don't know it exists until it's too late.

4. Using the wrong exclusion: High earners in high-tax countries often default to the FEIE when the FTC would save them more money.

5. Ignoring totalization agreements: The US has Social Security agreements with 30+ countries that prevent double Social Security taxation. If you're paying into a foreign social security system, you may be exempt from US FICA taxes.

FAQ

Do I need to file if I earned under the FEIE threshold? Yes. You must file to CLAIM the exclusion. The exclusion isn't automatic — it requires Form 2555.

What about self-employment tax? The FEIE does NOT exclude self-employment tax (15.3%). Self-employed expats still owe this unless they're in a totalization agreement country.

Can I use both the FEIE and FTC? Yes, but not on the same income. You can apply the FEIE to some income and the FTC to other income.

What if I haven't filed in years? The IRS Streamlined Filing Compliance Procedures allow delinquent expats to catch up without penalties if they can certify their non-compliance was non-willful. Do this before the IRS contacts you.

Key Takeaways

• The US taxes citizens on worldwide income regardless of residency — you must file every year
• The FEIE excludes up to ~$130,000 (2026) of foreign earned income, making most expat salaries effectively tax-free
• FBAR and FATCA reporting for foreign accounts is mandatory with severe penalties for non-compliance
• State taxes may follow you abroad — establish clean severance from your last US state
• Self-employment tax (15.3%) is NOT excluded by the FEIE — this catches many freelancer expats

Sources

1. Foreign Earned Income Exclusion — IRS.gov
2. FBAR Filing Requirements — FinCEN
3. Expat Tax Guide — Greenback Tax Services
4. FATCA Requirements — IRS.gov